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TMI Blog2017 (8) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of quantity sold cannot be the basis to hold that the payment as excessive and unreasonable. Merely because a person is not an employee but rendered the professional services cannot be the basis to hold that the payment made to such person is excessive and unreasonable. The 0.2 % commission for the turnover of ₹ 26,38,01,114/- cannot be held as excessive or unreasonable payment - Decided in favour of assessee Addition of notional interest income observing that appellant has charged lesser rate of interest - accrual of income - Held that:- The borrowed funds were mainly availed during the previous assessment years and brought forward to the year under assessment. During the year under consideration loans were given to Smt. Jaya Patodia and Mr. Manish Patodia (HUF) from the funds available in personal capacity and not out of the funds borrowed which is evident from the personal statement of affairs. When the assessee has both interest free funds and interest bearing funds, the presumption is that interest free funds are utilized for interest free loans. Hence, there is no justification for making the proportionate disallowance. The Assessing Officer failed to estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s representative appeared on various occasion and filed documents and gave details as and when asked for by the Assessing Officer. During the previous year relevant to assessment year 2008-09 the assessee was engaged in the business of trading of sulphur, fabrics and shares under the proprietary concern in the name of M/s. Atul International. He has derived Income from Business, Income from Salary, Income from Short Term Capital Gains (loss), Income from long term capital gains and Income from other sources, besides having tax exempt income from dividend and long term capital gains. 3. During the relevant year under consideration the assessee has claimed commission expenses amounting to ₹ 27,04,623/- in the business of trading of sulphur, besides an amount of ₹ 5,27,602/- which was paid as commission to the brother of the assessee, Sh. Manoj Patodia. While the assessee has made payment to all the parties on the basis of quantity of the sulphur traded i.e. at the rate of ₹ 1000 per metric ton, Sh. Manoj Patodia has been paid commission on the basis of percentage of total sale of sulphur i.e. at the rate of 0.2% on the total sale of sulphur. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed percentage of the total turnover of sulpher at 0.2% on total turnover of sulpher of ₹ 26,38,01,114/-. This commission was paid for carrying out the administrative activities and performing managerial activities. Merely because the commission was paid to Shri Manish Patodia was computed on turnover basis as fixed percentage thereof and the commission paid to others on the basis of quantity sold cannot be the basis to hold that the payment as excessive and unreasonable. The observations of Assessing Officer was that the commission paid to Shri Manish Patodia is on the different footing in comparison to the other parties and is thus not derive from the actual fact of the case. It is also to be noted that TDS has been duly deducted and the same was claimed by Shri Manish Patodia is also assessed to the same jurisdiction. By adding the amount in the hands of the assessee would amount to double taxation of the same transaction. 9. The Ld. DR relied upon the orders of the Assessing Officer and the CIT(A). The Assessing Officer has rightly disallowed 50% of the commission paid to Shri Manish Patodia on the basis that same is covered under Section 40A(2)(b) of the Act, the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of quantity sold cannot be the basis to hold that the payment as excessive and unreasonable. The observations of Assessing Officer was that the commission paid to Shri Manish Patodia is on the different footing in comparison to the other parties and is thus not genuine in correct facts of this case. It is also to be noted that TDS has been duly deducted and the same was claimed by Shri Manish Patodia is also assessed to the same jurisdiction. Merely because a person is not an employee but rendered the professional services cannot be the basis to hold that the payment made to such person is excessive and unreasonable. The 0.2 % commission for the turnover of ₹ 26,38,01,114/- cannot be held as excessive or unreasonable payment. In result, Ground No. 2 is allowed. 11. As relates to Ground No. 3, the Ld. AR submitted that the funds borrowed were mainly brought forwarded from previous assessment year and no disallowance of interest was made in past. The interest bearing funds were brought forward from previous year and were cross verifiable from the Schedule of unsecured loans attached to the Audited Balance Sheet of the Proprietary Firm M/s. Atul International as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Audited Balance Sheet of the Proprietary Firm M/s. Atul International as on 31.03.2008 wherein party wise details of funds borrowed are appearing with the corresponding outstanding as on 31.03.2007. Similarly borrowed funds taken in personal capacity are duly appearing in the personal Statement of Affairs of the assessee as on 31.03.2007 and 31.03.2008. The borrowed funds were mainly availed during the previous assessment years and brought forward to the year under assessment. During the year under consideration loans were given to Smt. Jaya Patodia and Mr. Manish Patodia (HUF) from the funds available in personal capacity and not out of the funds borrowed which is evident from the personal statement of affairs. When the assessee has both interest free funds and interest bearing funds, the presumption is that interest free funds are utilized for interest free loans. Hence, there is no justification for making the proportionate disallowance. The Assessing Officer failed to establish the nexus between the interest bearing borrowed funds and their utilization for loan given at a lesser rate of interest. The addition was made purely on notional interest income which neither was cha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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